As I write, the Prime Minister is busy rearranging the deckchairs on the good ship government as a number of senior members have resigned over the proposed future direction of Brexit negotiations.
Brexit was never going to be smooth sailing and the complexities of extracting ourselves from the EU seem to become more immense by the day.
I make no secret of the fact that I was a Remain voter and nothing that has happened since the referendum vote in June 2016 has changed my mind. Whilst accepting the result, I am not an advocate of referendums, working on the basis that we elect a Government to take decisions on behalf of the people, and David Cameron will go down in history as the weak Prime Minister who allowed the whole scenario to unfold.
At the moment no-one knows quite what direction things are going to take – we have Hard Brexit, Soft Brexit and now Half Brexit proposals – of course, whatever our stance on things it needs agreement with the EU to be implemented. Now there is even the possibility of a change of Prime Minister and a General Election before things are fully resolved.
Jeremy Corbyn is probably a worried man at the moment – he has had it relatively easy in opposition but may now actually have to deliver on his promises and potentially see us through the rocky Brexit waters of the next few years.
If a General Election comes about soon we might see Nigel Farage and other hard Brexiteers target the Brexit Leave voting constituencies in a bid to force a change in plans and a possible no deal or Hard Brexit approach. The clock is ticking and my own view is that there are two potential scenarios that could emerge. A half Brexit which is the current Government position (but not agreed with the EU) which sees us in the Hokey-Cokey position of having one leg in and one leg out of the EU. The other is a no deal scenario which would see us leave, thrown in at the deep end and having to learn to swim pretty damn fast! The option of another referendum still lurks in the background but would potentially be so devisive as to create a huge schism amongst the population of the UK which would fail to serve anyone’s best interests.
There is only one thing that is certain – uncertainty! Uncertainty and fear of the future stifles investment and progress and, in the housing market, people sit on their hands and wait. This, alongside affordability issues, lack of supply and choice of tenures (owned, privately rented, socially rented) is creating a challenging market, particularly in London and the South East.
Challenging times do help force innovation and change although this can be painful for many as not everyone will emerge as a winner. We have seen rapid growth in online estate agency providers (a recent report suggests 8% of UK sales), nearly all at low and fixed fees, and also in technological improvements, although sorting the really useful from the simply interesting technology out there can be a challenge in itself.
The traditional “High Street” operators are suffering particularly due to their high operating costs, which are largely fixed, and they are often very conservative (small c) about embracing change.
Transactional sale volumes have been steady in recent years at around 1.25 million transactions but, when one removes new homes sales which have been artificially bolstered by Government incentives such as Help 2 Buy, the numbers in the second hand market have reduced and are estimated to be down a further 8% in 2018 over the same period in 2017.
Lettings activity remains strong but the market appears to be shrinking as a number of landlords are choosing to exit based on greater regulation and potentially reducing yields. My view is that the medium to long term prospects for investor landlords still looks good both for capital growth and annual yields but there is undoubtedly some short term reductions in returns likely.
A recent report by an insolvency practice highlighted that there may be as many as 7000 estate agency offices under financial pressure. This probably equates to around 25-30% of the market and echoes my anecdotal views of the last 18 months when I have suggested that there will be considerable “blood on the carpet” with closures and “fire sale” disposals. With future bans on tenant fees already confirmed and possibly referral fees going the same way, this figure may actually increase.
Out of adversity invariably comes change – it is already happening and the pace will likely increase. Standing still is going backwards and, for some, it will be too late to turn the oil tanker around and they will flounder on the rocks. My recent video interview with Sam Zawadzki of Property Technology looked at the future facing agency and contains some, hopefully, interesting and thought provoking insights. You can view here:
A cull of weaker and inefficient agencies is inevitable and may allow the cake to be sliced a little more generously amongst those who survive. Good planning and positive action is needed to mitigate the downsides and take advantage of the opportunities that are still there, if a little harder to find and exploit.
I expect to see big changes within the property portals too. Rightmove’s current subscription model does not look sustainable and UBS have recently suggested investors should sell rather than buy. Zoopla has been acquired by Silverlake and will, no doubt, see changes although they are more diverse as a business than Rightmove with software and other services. Consequently they may be better placed to capitalise and build on change. On the Market is growing (albeit by giving the service away free to new agents) and, with pressures on agency costs, may start to do damage to Rightmove and Zoopla if it can achieve significant listing inventory and public recognition.
Like everyone in teh property industry, my own business is not immune to the changing landscape but I like to think that I am experienced and fleet footed enough to have recognised the need to change and not be afraid to do so. I have been working with many of my clients for several years and helping them plan and implement new strategies for a new order.
As always, I would be delighted to talk with you, in confidence, about your business and how I might assist you to achieve your goals.
Michael S Day MBA FRICS FNAEA FARLA
Managing Director